Sudden growth of stock market worrisome

(ĐTTCO) - The trading volume of the VN Index increased dramatically in November 2020, at an average of around one billion shares per day or sometimes even about 1.5 billion shares per day. 
Illustrative photo.
Illustrative photo.

Increase in trading volume and rising stock prices created records when trading value on the Vietnamese stock market surpassed the USD 2 bn mark per day, and even going upto to nearly USD 2.5 bn on some days. However, the result was that the number of individual investors increased far too quickly and many non-financial enterprises took stock investments as business profits, and hence the market could not help but turn on high alert mode.

For many people, it is difficult to fathom how stock investors now make huge amounts of profit in a matter of just a few weeks. Those who simply invested in the VN Index in mid-2020 have seen returns of nearly 100% by now. In proportionate terms, people participating in the stock market in Vietnam are still at a very modest level. The current maturity level of the market is still only in the marginal market group. Hence, the development of the stock market is inevitable and quite welcome, but in the short term, the sudden speed of growth is also rather worrisome.

For market makers and professional investors, when the market rises to a certain level, it will readjust its balance in portfolio and show profits. Then there will be some turmoil, and in case panic occurs, then there will be strong sell-off. At this time, new investors who have just joined the market will be the ones to bear the biggest brunt and see most losses. From a sudden burst of excitement in the expectation of making quick profits, after the market is heavily adjusted, the disappointment will be huge for many investors at this time, especially for those using financial leverage. This rapid fall will cause the new investors to lose faith in the stock market. This will also prove to be detrimental in the long run in the development of the market.

Vietnam's stock market is still being evaluated for its potential. There is a forecast that the VN Index can reach 1,700 points in 2022, the EPS growth rate will be in the range of 20% to 30%, and the P/E level may be around 14 or 15. However, according to the latest report of MSCI Vietnam on 29 October, the P/E of Vietnam Index is 23.85 and P/B is 3.8, which is quite high compared to other developing countries. For example, the P/E of MSCI of developed markets at the same time was 15.08 and P/B was 1.93.

In the long term, when the economy develops, the stock index will also increase, but in the short term, this is not certain at all. Therefore, it will be very risky for speculators who wish to surf the market, especially for those who are new to the market.

Vietnam's stock market recently is not just attracting individual investors but also several businesses. As the stock market saw an increase, production and business activities saw disruption, causing many businesses to look at other financial investment activities, most of which were in securities. Among these, there are businesses that have made impressive profits from securities investment, but there are also businesses that have tasted the bitter fruit. However, if this situation persists, it is a matter of great concern, because the resources of non-financial enterprises are being allocated to non-core activities of these enterprises.


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